How to legally structure and set up multiple businesses?

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Every entrepreneur has a consistent, common trait: their love for hustle, and an uncanny ability to not put up with anything rubbish. They’re doers by nature: if something is broken, they’re the ones willing to step up and fix it.

Which is why it’s not uncommon for an entrepreneur to involve himself with multiple ventures – there is something addictive about building something fantastic from the ground up.

If you, too, fall in this category, and are involved in running multiple businesses, or are looking to start the second one, you might wonder about the legal structure of such a setup. Should each business have a separate LLC or should one big umbrella company hold all your ventures? Are there any limits to the number of companies you can form?

Generally, there are three different ways in which you can structure multiple businesses. Each of these protocols has their pros and cons – and the best out of these is only for you to decide, depending on your needs.

Let’s look at what are the three ways:

1. Create individual corporations/LLCs.

To begin with, there is no limit to how many LLCs you can form. Many people opt for filing a new LLC or corporation for each of their ventures. For example, you can form one LLC for your venture A and the other for venture B. Then, if either of your businesses faces roughness, the other will stay unaffected. Venture B won’t share liabilities with venture A in case it fails.

However, on the downside, this process involves additional maintenance fees and paperwork. You’ll need to pay to form an LLC or incorporate for each of your ventures, as well as the additional annual maintenance. Some people can find this extra paperwork troublesome, but, for the others, the added fee justifies the security of each business venture.

2. Put DBAs under one corporation/LLC.

DBAs stands for Doing Business As. This is another common way to structure multiple businesses. You can file one LLC and set up DBAs for as many ventures as you’d like.

Continuing the previous example, suppose you have an LLC for the business venture A, and you’re starting venture B. In such cases, the LLC can file a DBA for venture B. From the perspective of marketing, each of your ventures can be operated as separate companies – using different business names, accepting cheques only written to that business, etc.

With this approach, some of the annual maintenance is simplified, and you can use different branding and company names. All you need to do is pay your annual LLC/corporation maintenance fees for the LLC/corporation (and not each DBA).

If you use an EIN, you’ll need just one. And, when it’s time to fill your taxes, you can aggregate the incomes from all your DBAs and report them in a single tax filing under the main corporation.

Each of your DBA will enjoy the legal protection of your main LLC. For example, if something happens to one of your DBAs, no harm will come to your personal assets of the LLC. However, the DBAs aren’t protected from one another. Implying, if one of the DBA gets sued, all the other DBAs under the main LLC are liable.

3. Create a business under the holding company.

Using this approach, you can create individual LLCs or corporations for each of your businesses and put them under one main holding corporation/LLC.

This method is practiced by a few companies. One, the companies which are looking to be acquired shortly prefer this over the other two methods. Two, if an established organization is looking to spread by starting a new business venture (funded by the main company), it’ll also opt for this method. As expected, this method has complex tax and legal implications. It’s best to consult a tax advisor on the best way to structure a holding company and its subsidiaries.

In the end, there’s no legal limit to how many business ventures you can run. All you need to do is ensure that you accurately account for your liability risks while structuring these ventures.